2011, the year of rising rents

Tenants are facing a double whammy from the Australian property markets this year, with so-called inflated house prices and rising rents pushing the possibility of home ownership further out of reach.

New figures from RP Data reveal that rents across capital cities are set to rise by 7% over 2011, with tenants already coughing up an additional 4.2% on average for the year to December 2010. Tenants in the outer suburbs were slightly better off, with rents increasing by 2.9%, just above the rate of inflation at 2.7%.

RP Data analyst Cameron Kusher says the rental market will tighten further this year and expects that, “rental growth during 2011 will likely eclipse that of 2010.”

Investors who own inner city units and apartments, as well as property in more expensive outer metropolitan areas, will be happy with Kusher’s prediction that rents will most certainly rise for these markets in the coming months.

While it seems property investors can expect healthier returns this year, according to reports from both the ANZ and National Australia Banks house prices will weaken as interest rates continue to creep up and affordability issues persist over 2011.

The good news for investors is that for many, property portfolios will become neutrally geared as yields catch up with rising monthly interest repayments. For tenants however, higher weekly rents will make it harder to save for a deposit to break into the already seemingly impenetrable housing market.

According to the Australian Bureau of Statistics, the cost of housing rose by 0.6% in the December 2010 quarter, making the annual increase 5%.

During the same period, RP Data reports that Melbourne house rents rose to a median of $360 per week (up by 2.9%), Brisbane median house rents increased by 1.4% to $365 and Perth tenants were paying an average 1.3% extra at $385 per week. Sydney house rents remained static at a median of $450 per week.

Data for the past five years reveals the extent of the struggle tenants have faced trying to cope with ever increasing costs, with capital city rents rising by a total of 44.2% over the past five years to a median weekly price of $375.

According to the RP Data report, “…on an annual basis we expect that capital city markets are likely to have strong prospects for rental growth during 2011 and the rate of growth is likely to be closer aligned with average levels over the last five years.”

“Vacancy rates remain tight in the capital cities, first home buyers remain relatively inactive, interest rates are at higher levels and new supply coming on-line is quite constrained.”

So while the tenants remain on a rental merry go round, the good news for property investors is that rentals will rise.

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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

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